Home Guaranty Corp.

Gov’t lost P300M in new land deal

Gov’t lost P300M in new land deal
By Neal Cruz
Philippine Daily Inquirer

Officials of the Arroyo administration seem to be very busy providing for their future as the administration winds down to its last few days. Government assets are being sold at bargain prices in a hurry, no doubt to beat the election, after which they would all be kicked out. Can you blame them if they try to equip themselves with golden parachutes for when they have to jump out, or be pushed out of a vehicle spinning down toward a fiery crash?

The latest scandal you will hear for the next few weeks is the sale, at a bargain price, of a piece of government land in Manila to a private corporation.

The Home Guaranty Corp. (HGC) sold a 2.8-hectare piece of Harbour Centre to La Paz Milling Corp. for only P13,000 per square meter. Adjoining lots are now priced at an average of P25,000 per sq m. The sale was “grossly disadvantageous to the government,” said Jerome Canlas who filed an anti-graft case against Gonzalo Benjamin Bongolan, president of HGC and six other top officials of the government corporation.

The government may have already lost P300 million in the deal. Look at this:

At the time of the sale in July 2008, the property was worth between P506,205,000 and P694,224,000 based on purchase prices as of 1999 and 2001, current sale offers and an independent appraisal of market values of adjacent properties, Canlas said in his complaint.

He said that in 1999, the Philippine National Bank sold for P22,000 per sq m Lot 2, Block 1 which is adjoining the properties sold by HGC (Lots 3 and 4 of Block 3 at Harbour Centre) in Barangay Vitas, Tondo, Manila.

In August 2001, the National Housing Authority sold another adjoining property for P17,500 per sq m.

“Note that the above transactions occurred eight or 10 years prior to the sale of the HGC properties on July 28, 2008,” Canlas said.

He added that on May 21, 2009, Planters Bank offered to sell another adjoining property for P20,000 per sq m.

Also, EValue Plus, a professional property consultant firm, in its appraisal report of July 2008, placed the fair market value of adjoining lots at Harbour Centre at P24,000 per sq m as of June 2008. Based on that appraisal, HGC should have sold the property for at least P694 million, Canlas said.

But that same month, HGC sold the land for only P13,000 per sq m for a total sale price of P384,715,800.

“The difference between the fair market value of the subject properties and the actual purchase price is from P121,489,200 to P309,508,200. In other words, the government lost from P121,289,200 to P309,508,200 in the deal,” the complaint said.

Real estate people also pointed out that since the Manila Harbour Centre is now being developed as a major commercial and industrial area, the property could easily fetch a P30,000 per sq m price tag.

Clearly, the deal signed by HGC officials was “grossly disadvantageous to the government,” said Canlas.

The Office of the Ombudsman is now investigating the deal. It ordered the seven HGC officials to explain their participation in the deal. It said it has found “enough basis to proceed with the preliminary investigation” of the graft charges as well as with the “administrative investigation” of the case.

A little backgrounder on HGC and the subject properties:

In March 1994, the National Housing Authority (NHA) and R-II Builders entered into a Joint Venture Agreement (JVA)) to develop the Smokey Mountain garbage dump in Manila into a residential, commercial and industrial area. Under the JVA, R-II would finance the development of the Smokey Mountain site by constructing temporary and permanent housing units, and preparing the commercial and industrial sites.

To secure more funds for the project, the NHA and R-II agreed to create an asset pool in which they placed their respective interests and rights consisting substantially, for the NHA, of tracts of real estate within the Smokey Mountain area and reclaimed land, and for R-II, the investments it had made as project developer. The 2.8-hectare property in question is part of this asset pool.

The asset pool then became the asset backing when they issued interest-earning asset participation certificates (APCs) to investors. The securitization scheme was embodied in a trust agreement called the Smokey Mountain Pool Formation Trust Agreement. The parties in the agreement were the NHA, R-II, HGC as guarantor, and the Philippine National Bank (later on Planters Development Bank) as trustee.

When the certificates matured in October 2002, Planters, which lacked funds, asked HGC to pay for the maturing certificates. Subsequently, Planters executed a deed of assignment and conveyance covering the entire asset pool in favor of HGC, which enabled the latter to get physical possession of the asset pool properties, including the 2.8-hectare lot.

When R-II learned that HGC was selling some of the properties that formed the asset pool, a move that it said will deplete its interest in the development, it sought and was granted an injunction prohibiting HGC from disposing of any property in the asset pool.

The injunction was upheld by the Court of Appeals, and became final and executory.

Despite the injunction, however, HGC still sold the 2.8 hectare parcel to La Paz Milling Corp. in July 2008.

R-II filed a case for indirect contempt against HGC and La Paz with prayer to void the sale and subsequent return of the 2.8 hectare property to the asset pool.

Canlas of R-II filed criminal and administrative charges in the Office of the Ombudsman against Bongolan and six other top officials of HGC.